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States and Net Neutrality

We now know how states are going to react to the end of net neutrality. There are several different responses so far. First, a coalition of 23 states filed a lawsuit challenging the FCC’s ability to eliminate net neutrality and Title II regulation of broadband. The lawsuit is mostly driven by blue states, but there are red states included like Mississippi and Kentucky.

The lawsuit argues that the FCC has exceeded its authority in eliminating net neutrality. The lawsuit makes several claims:

The suit claims that under the Administrative Procedure Act (ACA) the FCC can’t make “arbitrary and capricious” changes to existing policies. The FCC has defended net neutrality for over a decade and the claim is that the FCC’s ruling fails to provide enough justification for abandoning the existing policy.

The suit claims that the FCC ignored the significant public record filed in the case that details the potential harm to consumers from ending net neutrality.

The suit claims that the FCC exceeded its authority by reclassifying broadband service as a Title I information service rather than as a Title II telecommunications service.

Finally, the suit claims that the FCC ruling improperly preempts state and local laws.

Like with past challenges of major FCC rulings, one would expect this suit to go through at least several levels of courts, perhaps even to the supreme court. It’s likely that the loser of the first ruling will appeal. This process is likely to take a year or longer. Generally, the first court to hear the case will determine quickly if some or all of the FCC’s ruling net neutrality order will be stayed until resolution of the lawsuit.

I lamented in a recent blog how partisan this and other FCCs have gotten. It would be a positive thing for FCC regulation in general if the courts put some cap on the ability of the FCC to create new policy without considering existing policies and the public record about the harm that can be caused by a shift in policy. Otherwise we face having this and future FCCs constantly changing the rules every time we get a new administration – and that’s not healthy for the industry.

A second tactic being used by states is to implement a state law that effectively implements net neutrality at the state level. The states of New York, New Jersey and Montana have passed laws that basically mimic the old FCC net neutrality rules at the state level. It’s an interesting tactic and will trigger a lawsuit about state rights if challenged (and I have to imagine that somebody will challenge these laws). I’ve read a few lawyers who opine that this tactic has some legs since the FCC largely walked away from regulating broadband, and in doing so might have accidentally opened up the door for the states to regulate the issue. If these laws hold up that would mean a hodgepodge of net neutrality rules by state – something that benefits nobody.

Another tactic being taken is for states, and even a few cities, to pass laws that change the purchasing rules so that any carrier that bids for government telecom business must adhere to net neutrality. This is an interesting tactic and I haven’t seen anybody that thinks this is not allowed. Governments have wide latitude in deciding the rules for purchasing goods and services and there are already many similar restrictions that states put onto purchasing. The only problem with this tactic is going to be if eventually all of the major carriers violate the old net neutrality rules. That could leave a state with poor or no good choice of telecom providers.

As usual, California is taking a slightly different tactic. They want to require that carriers must adhere to net neutrality if they use state-owned telecom facilities or facilities that were funded by the state. Over the years California has built fiber of its own and also given out grants for carriers to build broadband networks. This includes a recently announced grant program that is likely to go largely to Frontier and CenturyLink. If this law is upheld it could cause major problems for carriers that have taken state money in the past.

It’s likely that there are going to be numerous lawsuits challenging different aspects of the various attempts by states to protect net neutrality. And there are likely to also be new tactics tried by states during the coming year to further muddy the picture. It’s not unusual for the courts to finally decide the legitimacy of major FCC decisions. But there are so many different tactics being used here that we are likely to get conflicting rulings from different courts. It’s clearly going to take some time for this to all settle out.

One interesting aspect of all of this is how the FCC will react if their cancellation of net neutrality is put on hold by the courts. If that happens it means that some or all of net neutrality will still be the law of the land. The FCC always has the option to enforce or not enforce the rules, so you’d suspect that they wouldn’t do much about ISPs that violate the spirit of the rules. But more importantly, the FCC is walking away from regulating broadband as part of killing Title II regulation. They are actively shuttling some regulatory authority to the FTC for issues like privacy. It seems to me that this wouldn’t be allowed until the end of the various lawsuits. I think the one thing we can count on is that this is going to be a messy regulatory year for broadband.